(b) Answer the following questions based on the figure given below :y-

1.	(b) Answer the following questions based on the figure given below :y-axisS = -50 +0.2 YSavingsB→ X-axisIncomeAD(i)At which level of income, Average Propensity to Consume willbe equal to one and why ?What is the significance of saving curve above the point B.(ii)
Answer» Answer: The ratio of change in consumption (C) to change in income (Y) is known as marginal propensity to consume. It indicates the PROPORTION of additional income that is being spent on consumption. MPC=ΔCΔY The sum of MPC and MPS is EQUAL to one. It can be proved as under: We know: ΔY = ΔC + ΔS Dividing both sides by AY, we get,ΔY/ΔY=ΔC/ΔY + ΔS/ΔY or 1=MPC+MPS [ΔY/ΔY=1; ΔC/ΔY =MPC ΔS/ΔY=MPS] MPC + MPS = 1 because total increment in income is either USED for consumption or for saving.

(b) Answer the following questions based on the figure given below :y-axisS = -50 +0.2 YSavingsB→ X-axisIncomeAD(i)At which level of income, Average Propensity to Consume willbe equal to one and why ?What is the significance of saving curve above the point B.(ii)

Answer»

Answer:

The ratio of change in consumption (C) to change in income (Y) is known as marginal propensity to consume. It indicates the PROPORTION of additional income that is being spent on consumption.

MPC=ΔCΔY

The sum of MPC and MPS is EQUAL to one. It can be proved as under: We know: ΔY = ΔC + ΔS

Dividing both sides by AY, we get,ΔY/ΔY=ΔC/ΔY + ΔS/ΔY or 1=MPC+MPS

[ΔY/ΔY=1; ΔC/ΔY =MPC ΔS/ΔY=MPS]

MPC + MPS = 1 because total increment in income is either USED for consumption or for saving.

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(b) Answer the following questions based on the figure given below :y-axisS = -50 +0.2 YSavingsB→ X-axisIncomeAD(i)At which level of income, Average Propensity to Consume willbe equal to one and why ?What is the significance of saving curve above the point B.(ii)​

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(b) Answer the following questions based on the figure given below :y-axisS = -50 +0.2 YSavingsB→ X-axisIncomeAD(i)At which level of income, Average Propensity to Consume willbe equal to one and why ?What is the significance of saving curve above the point B.(ii)